NIKE, Inc., established onSeptember 8, 1969, is one of the famous sportscompanies which designs, develops, markets and sells the products of athleticfootwear, apparel, equipment, accessories,and services.
The Company operates some locations in the world. They are inNorth America, Western Europe, Central & Eastern Europe, China, Japan and Emerging Markets. (Reuters, 2018) NIKE, Inc., include a fewportfolio brands such as the NIKE Brand, Jordan Brand, Hurley, and Converse.NIKE, Inc., sells its products to retail stores and internet web sites, and amix of independent distributors and licensees across the world. (Reuters, 2018) The company producesspecifically for athletic use.
The company also provides products for casual andleisure purposes. The company sells a range of products for men, women, boys,and girls. NIKE Brands offers three main types of products such as shoes,clothing, and accessories and equipment. The Company’s footwear products aredesigned primarily for lifestyle, running, basketball, training & gym,soccer, skateboarding, boots and custom Shoes.
The Company also sells sportsclothing such as compression & Nike Pro, Tops & T-Shirts, Polos,Hoodies & Sweatshirts, Jackets & Vests, Pants & Tights, Shorts,Surf & Swimwear, Socks The Company also markets clothing with aprofessional team, licensed college, and league logos. (NIKE, 2017) Besides, NIKE Brandsproduces accessories and equipment such as bags, backpacks, hats, andsunglasses. (NIKE, 2017) The Company’s brandis Converse which designs, distributes and licenses casual sneakers, clothing,and accessories and equipment under the Converse, Chuck Taylor, All Star, OneStar, Star Chevron and Jack Purcell trademarks. (Reuters, 2018) Its mostsignificant growth drivers will likely come from international markets such asChina and Western EuropeG1 G2 . There are some companiescompete with NIKE. They are Adidas, Lululemon, Puma, and Under Armour. Nike is an example ofmonopolistic competition as ithas the characteristics that a perfect competitionhas, except the fact that its products are not exactly like its competitorssuch as Adidas and Under Armour. Productdifferentiation is the real or perceived differences between competingproducts in the same industry.
G3 Clothing segment revenue,grew faster, than total company revenues, at 4.65 %, but underperformed itscompetitors within this segment. (CSIMarket, 2017) Equipment andanotherG4 segment, NIKE lost its marketshare to about 14.53 percent while footwear segment, NIKE grew its market shareof 8.98 percent.
NIKE improved market share to approximate 39.93 percent. (CSIMarket, 2017)G5 Appendix 1: NIKE’s stockperformance relative to its competitorsG6 G7 Source: Consider Nike and itsstrong track record. (2017, December 29). Retrieved January 02, 2018, fromhttp://www.
spokesman.com/stories/2017/dec/31/the-motley-fool-consider-nike-and-its-strong-track/I. Production costs andscale NIKE doesn’t own any factoriesfor manufacturing its footwear and clothing, which make up almost 88% of itsrevenues. In its place, manufacturing is subcontracted to third parties asthe cost advantages of doing so.
Most raw materials in NIKE’s supply chainare sourced in the manufacturing host country by independent contractors. NIKE’s growth ininternational markets helped the company’s profit and sales quarterly; however,there is a decline in gross margins showed severe price competition in NorthAmerica which is its largest market. (channelnewsasia, 2017) NIKE’ssecond-quarter gross margins fell 1.
2 percentage points to 43 percent becauseof a stronger dollar and higher production costs. (Financial Times, 2017) NIKE’s selling andadministrative expenses rose 10 percent for the quarter because it spent moreon advertising in the North American market. (Financial Times, 2017) The decline indemand for its products such as footwear and sports equipment in North Americaalso led to a 5 percent drop in revenue from the market. (Financial Times, 2017) (Financial Times, 2017)However, it was offset by an increase in demand from China and Europe.
Quarterly income from China rose 16 percent and Europe 19 percent. (Financial Times, 2017)Since 2015, NIKE has been working with Flex, the high-tech manufacturingcompany well-known for producing Fitbit activity trackers and Lenovo servers. (Financial Times, 2017)It introduces greater automation into the labor-intensive activity of making ashoe. Flex’s capacity in Mexico becomes one of the company’s most importantfactories that are responsible not just for a growth of the company’s productsbut also for a succession of innovations across NIKE’s supplier base such aslaser-cutting and automated gluing. The shift to higher automation has two bigattractions. By cutting down costs, it could lead to a dramatic improvement inprofit margins.
(Appendix 2) It would also allow the company to deliver newdesigns more quickly at a premium. For example, a pair of Nike Roshe shoes costs $75without Flyknit uppers, compared to as much as $130 with Flyknit.G8 (Financial Times, 2017) Due to a competitiveretail environment, NIKE has been seen as racking up expenses, favoringdiscounts and massive spending to grow its direct-to-consumer business. The 24percent fall could be attributed to gross margin decline, a higher effectivetax rate, and other expenses.
Also, NIKE has planned to cut 2 percent of itsglobal workforce and trim its geography segments from six to four. They areNorth America; Europe, Middle East and Africa; China; and Asia-Pacific andLatin America. (Financial Times, 2017)G9 Appendix 2: How NIKE could use Flex to boost margins Source: Financial TimesNike’s focus on robotics threatens Asia’s low-cost workforce. (n.d.). RetrievedJanuary 02, 2018, fromhttps://www.ft.
com/content/585866fc-a841-11e7-ab55-27219df83c97 II. Macro Business Environment NIKE has moved more than 900million units through its supply chain in 2016. There are 700 factories in 42countries which its manufacturing network consists of. In the USA, NIKE productsare sold through 22,000 retail accounts; worldwide, the company’s products aresold in more than 160 countries. (Drive, 2017) Both domesticallyand overseas, NIKE operates retail stores, including NikeTowns and factoryoutlets. Nearly all of the items are manufactured by independent contractors,primarily located abroad, with NIKE involved in the design, development, andmarketing. NIKE corporation is an American international company.
Because policies of the USgovernment have grown, NIKE has gained benefits significantly by maintaininglow-interest rates, currency exchange stability, and internationallycompetitive tax arrangements. NIKE has also benefited from cooperation withgovernment initiatives regarding transparency in the global value chain.Because the company produces and sells physical goods, NIKE is subject tochanges in tax and manufacturing laws. Various political conflicts can alwaysmake customs related processes difficult, or prevent imports and exports. By movingproduction closer to its key markets will help satisfy some of that demand.
NIKE has opened up new political issues in the countries where it has beenoperating for the past two decades. The company risks being attacked for deprivingjobs of its Asian workers. Legal factor has to do with the regulations of the government that comeinto play from time to time. They relate to the legal environment of anorganization and the impacts they execute on the performance of an organizationin the marketplace which includes health and safety laws, consumer law,competition law, employment law, and discrimination law.
NIKE has faced a lotof legal issues in its process of growth and development. In the past, NIKE hasfaced several lawsuits related to labor abuse and wages. (Financial Times, 2017) Anemployee was paid low wages and benefits. Furthermore, the salary issues led tochange of management regulatory the factor which affected the organizationcompetitiveness in the market. NIKE sells a medium rangeproduct; therefore, they are a few vulnerable to economic factors than otherbrands.
However, there are some of the economic variables. A market downfallcould be a disadvantage for NIKE. Consumers may decide to switch to lower-end,cheaper products if this were to happen, or if it is just as a decent level ofquality becomes easier to produce. NIKE’s revenues depend on the low cost oflabor in far eastern countries. This can also mean the higher its prices acrossthe world will become with the development in less economically developedcountries. NIKE focuses on the condition of economies where it sells it’s allsports products. The advance and developed nations have an almost stableeconomy with the same purchasing power of the customers. Also, NIKE would make better economicpolicies to target some developing countries.
The opportunities that could bethe opportunity for the NIKE are the economic stability of the developedeconomy in its target countries as well as the time, and again the rapid growthof emerging markets could also be seen as the most significant opportunity forthe organization. In this regard, USA market has been given a vast opportunityto Nike to expand and increase the growth rate. Over the last 20 years, the increased demand in the sportingclothing market in the USA provided an excellent opportunity for NIKE. The onlyhigh-quality brand that existed in the US market was Adidas which were veryexpensive and not available. This economic situation provided a perfectenvironment for NIKE brand to take advantage very quickly due to itsavailability and affordability. NIKE usually makes much profit because of itsincreased sales and low costs due to economies of scale it is enjoying.
Besides, the strong US currency is led to the selling of the NIKE shoes atlower prices than Adidas even though both brands had the same quality. Fitness is a criticalconcern for all people in these days. Therefore, NIKE has increased theinterest in sports. Most people nowadays are actively participating in fitnessclubs and sports competitions.
NIKE cantake advantages of this influencing social dynamic by introducing its finequality athletic and other sports products. The company targeted athletes andtheir need for quality affordable shoes. Changing the customer’s needs andpreferences for high-quality, affordable sports gear and the changinglifestyles increased the pace of product change to fit the customers’ needs.Consumers look for products that despite being athletic are stylish andfashionable. The market might be growing, but NIKE still holds its valuableposition in its market. Olympics season remains highly essential and profitablefor NIKE and competing brands. For NIKE, culture is a crucial factor and brandsmay be required to alter its product styles to gain popularity in the abroadmarkets.
NIKE has used a different advertisement in the USA and another one inChina. In China, there are over 400million people active in sports and exercise nowadays, and Nike believes thatthe Chinese market will eventually expand to become more than ten times thesize of Nike’s North American consumer base.G10 G11 G12 G13 G14 (The Spokesman Review, 2017) Then it is due to thecultural differences as a culture also affects marketing and marketingexpenses.
G15 G16 G17 Mostly, NIKE has outsourced its production to contractedsuppliers. However, in some areas such as inventory and distribution, itsperformance is still affected by the use of technology. The company has been using new technology to helpreduce costs and to maximize profits which reduces the amount of employment on offer. TheILO estimates almost 56 percent of the workforce in Cambodia, Indonesia, thePhilippines, Thailand, and Vietnam are at a risk of being automated over thenext decade or two, with clothing and footwear manufacturing jobs among thehardest hit. (Financial Times, 2017) NIKE also gets theopportunity to use its information because of technological advances, allowingthe company to optimize targeting and production, and maximize revenue. III.
Sustainability practice of the business By becoming a partner withbluesign technologies, NIKE is enabling its material suppliers to access twoinnovative tools which are the bluesign bluefinder and the bluesign blueguideto accelerate innovation in more sustainable materials. (NIKE, 2017) With bluefinder, asupplier can access pre-screened and more sustainable textile preparations.They are dye systems, detergents and other chemicals that are used in themanufacturing process. The bluefinder also allows suppliers to effectivelymanage restricted substances and provides the opportunity to increase water andenergy efficiency. The blueguide gives the company access to more than 30,000materials are produced by using chemicals from the bluefinder at facilitieswhich have undergone rigorous assessment.
(NIKE, 2017) Inthe previous time, to access these tools and data, a brand needed to take itssupply chain contractors through individual factory assessments. For an out-souG18 G19 rced global supply chain of NIKE’s size, that would require significantinvestment and many years. This agreement opens access to bluesigntechnologies’ key tools and data for an expanded supplier base at the nominalcost across NIKE’s global supply chain, which gothroG20 ugh G21 almost 50 countries and over 800 contracted factories with hundreds oftextile manufacturers supplying the factories making NIKE products. (NIKE, 2017) NIKE is alsocommitted to the change in the world of materials, eliminating of hazardous substancesand innovating new and sustainable materials.
To shift to maintain sustainablematerials, numerous stakeholders must work together to innovate betterchemistry and remove harmful chemistry. In 2001, NIKE introduced arestricted substances list based on the most strict worldwide legislation plusother non-restricted substances, is practicing an integrated strategy toencourage chemical suppliers and textile manufacturers to practice positivechemistry and also to work together to eliminate hazardous substances throughits internal operating processes and policies. NIKE’s partnership with bluesigntechnologies enables NIKE to put a set of positive chemistries in the hands ofmaterials suppliers.
The company believes that this partnership will helpencourage others to collaborate in changing the way textiles are created. As environmentalawareness in the world has risen, the impact of environmental factors onindustry performance and profitability has also grown. In the past, NIKEencountered several protests over its environmental impact which was mainly dueto the bad environmental practices by its suppliers. However, over time thecompany has managed this pressure and framed policies for its suppliers tocreate sustainable products. Recently, sustainability is linked to innovationand strategic plans at NIKE. Besides, NIKE has put many efforts towardsimplementation of sustainable product innovation cycle. The environmentalprogram exhibited by NIKE has helped in building robust public relations andhas enticed many customers and investors. Many American investors areenvironmentally conscious.
G22 G23 G24 (NIKE, 2017)Thus they feel actively involved in environmental protection by investing inNIKE, which they feel are ethical environmentally. NIKE shoes are greener andmore ethical as compared with other products in the USA market because NIKEshoes are more comfortable to recycle, and the solvent use of reduced by over85% when compared with other brands such as tiger and Adidas.G25 G26 G27 G28 G29 G30 G31 G32 G33 G34 G35 IV. Conclusion In conclusion, NIKE has improved itsprofit margins by reducing inventories, minimizing price markdowns, andensuring that the customers receive the right product variety on time so far. However,for the past two years, NIKE faced some problems for not doing enough toaddress issues at one of its supplier’s factories.
The major problem whichaffected the reputation of NIKE is employee wages and benefits. Sustainable innovation is apromoter for revolutionizing the way NIKE does its business and an opportunitythat’s been integrated across its business in policies, processes, andproducts. NIKE has put the effort in innovating solutions that benefitathletes, the company, and the world. According to Nike,”Sustainable innovation is a catalyst for revolutionizing the way we dobusiness and an opportunity that’s been integrated across our business inpolicies, processes, and products. NIKE is trying to shrink lead times onproduction while increasing direct sales to consumers as retail partners. Nike’s time-tested brand and unmatched supply chainnetwork form a defensive moat that should help it capture growth in the apparelindustry.
It’s worth a closer look for long-term investors. To achieve thesegoals, the company is readjusting the growth by committing to serve consumersin 12 cities in 10 key countries. (The Spokesman Review, 2017) They are New York,London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City,Barcelona, Seoul, and Milan.
These locations will make up 80% of Nike’s growththrough 2020. (The Spokesman Review, 2017) Inserted: nificanInserted: most sDeleted:gesInserted: anDeleted:bInserted: eDeleted:iInserted: ikeDeleted:IKEInserted: tenInserted: sInserted: waInserted: nInserted: overDeleted: aloneDeleted:tDeleted:10Inserted: timeInserted: In the pInserted: go thInserted: ughInserted: obuInserted: mInserted: rogrDeleted:PDeleted:lyDeleted:. The tools are being rolled outDeleted: Inc.Deleted:cDeleted:ssesDeleted:lDeleted:nDeleted:veDeleted:y Deleted:rong